Here are the formulas on how to calculate personal (employee) income tax, pension, gross and net income in Ethiopia.

Salary Income Tax = (Gross Salary * Tax Rate) – Deduction

Employee Pension – Gross Salary x 7%

Net Income = Gross Salary – Salary Income Tax – Employee Pension – Other Taxes (If applicable)

Employee Pension – 7%

Company Pension – 11%

No.Salary Range (ETB)Tax RateDeduction (ETB)
1.0 – 600 BirrNon-Taxable
2.601-1,650 Birr10%60 Birr
3.1,651 – 3,200 Birr15%142.50 Birr
4.3,201 – 5,250 Birr20%302.50 Birr
5.5,251 – 7,800 Birr25%565 Birr
6.7,801 – 10,900 Birr30%955 Birr
7.Over 10,900 Birr35%1,500 Birr

 

Sample Calculation

If the salary of an employee is 2,000 Birr.

By referring to the above table, we can see that 2,000 birr falls in the No. 4 row. So, Tax Rate = 15% and deduction = 142.50

Income Tax = (2,000 Birr x 15%) – 142.50 Birr

Income Tax = 300 Birr – 142.50 = 157.50 Birr

Employee Pension = 2,000 Birr x 7% = 140 Birr

Employee Net Income = 2,000 Birr – 157.50 – 140 = 1702.50 Birr

Net Income = 1,702.50 Birr